In late August of 1975, the bank filed confessed judgments against Liberty in the amounts of $135,000.00, the balance of the original $175,000.00 loan, and for the $90,000.00 loan. The judgments remained open and were not executed on until after Liberty was closed. Northside's Exhibit V shows that the judgments were satisfied from Picone's assets, not from accounts receivable.
In August of 1975, Tarn or William Schnebel, a vice president of Northside, began to inspect virtually every check drawn on Liberty's payroll account as they came through. Overdrafts were made known at director's meetings and were listed on an overdraft list distributed to bank officers.
At about this time Liberty began making deposits in an account at Equibank and deposits in Northside decreased. This was noticed at Northside.
Northside began to selectively honor or dishonor Liberty's checks. All payroll checks were honored, checks to Tomchik were honored and checks to customers necessary to keep Liberty in business were honored. From October of 1975 onward a bookkeeper at Liberty would call Tarn and tell him which checks had to be honored. Tarn would initial some checks, indicating that they could be honored. About 22 checks were thus initialed.
On September 8, 1975, the government filed a tax lien for $15,234.58 for the Third quarter of 1974 payroll taxes.
On October 8, 1975, another tax lien was filed for $82,754.41 for the Second quarter of 1975. Other liens were filed later on as will be mentioned hereinafter.
On November 12, 1975, after discussions with Picone, Northside directed Picone to instruct his major customers to send their payments (Liberty's accounts receivable) directly to the bank. This was done. A special bank account was opened and a bank officer was directed to manage the account.
In mid-November, Brandt resigned as a director of Liberty.
On November 18, 1975, the bank received a report on Liberty and Picone listing all property, all judgments, mortgages, and tax liens.
On December 12, 1975, Northside converted Liberty's overdrafts into a loan for $250,000.00. For a short period following this loan, the payroll account was not in overdraft status. Northside, at this time, also released Liberty's bank statements and cancelled checks.
On December 17, 1975, Equibank notified Northside that it would not make the loan for $500,000.00 which had been requested.
On December 18, 1975, another financing statement was filed covering certain of Liberty's P.U.C. certificates to help secure the loan for the $250,000.00. About $42,000.00 of the $250,000.00 loan was repaid before Liberty was closed.
On December 22, 1975, Northside filed another financing statement covering more P.U.C. certificates and on January 28, 1976, another such statement was filed covering still more P.U.C. certificates and "all equipment, machinery, inventory and supplies including all office furniture and equipment and future additions thereto." On January 30, 1976, another such certificate was filed covering still more P.U.C. certificates.
On February 6, 1976, Brandt wrote to Equibank and rebuked Equibank for leading Northside to believe that the loan would be granted. He said "We now realize that we made a mistake in trying to carry these obligations to a point that exceeded our lending limit but we felt that commitments made by officials of a prominent banking organization would be kept and that the problem would be solved." (Plf.'s Exh. No. 16).
On Friday, February 27, 1976, Northside closed Liberty. In due course all equipment and inventory was sold and the proceeds distributed (See Northside Exh. V). When the closedown occurred, Liberty's debt to Northside was between $400,000.00 and $650,000.00. In the first quarter of 1976 overdrafts, alone, came to about $130,000.00. Of this amount, $124,000.00 represented overdraft payroll checks.
On Monday, March 2, 1976, Picone called Tomchik to advise that he had been closed. Tomchik called Tarn and Robert Wagner, a member of Brandt's law firm and an attorney for Northside, to inquire. Tarn informed Tomchik that the tax payments for January and February 1976 had not been honored because Liberty's account had been in overdraft status. Wagner gave Tomchik the same advice.
Northside continued to collect and distribute Liberty's accounts receivable.
From November 1, 1975 to December 31, 1975, Northside received $359,039.23 in accounts receivable; from January 1, 1976 to February 29, 1976, receipts were $396,399.55, and from March 1, 1976 to the date of trial, $105,757.52. The bank has also collected in liquidation of Liberty's property, $40,100.72 in which, it admits, it had no security interest.
There follows an analysis of the government's assessments and the dates of filing liens and the balances due.
The bank does not contest the assessment dates, the filing dates or the balances due. It simply defends that it is not liable under any of the theories advanced:
Type Date Of Date Of Notice
Of Tax Assessment Amount Balance Of Tax Lien*
WT-FICA 4/7/75 $76,416,84(T) $15,234.58 9/ 8/75 (3rd Qtr. '74)
9/ 1/75 754.26(DHC)
7506 8/11/75 78,610.66(T) 82,754.41 10/ 8/75(2d Qtr. '75
7509 2/23/76 76,845.08(T) 24,194.67 4/ 7/76 (3d Qtr. '75)
WT-FICA 1,091.77(FTP) 5/ 7/76
7512 4/ 5/76 55,708.42(T) 39,592.24 4/12/76 (4th Qtr. '75)
WT-FICA 2,785.42(FTD) 5/ 7/76
7603 5/11/76 47,495.34(T) 49,974.30 5/20/76 (1st Qtr. '76)
WT-FICA 2,374.77(FTD) 7/ 9/76
7512 3/ 8/76 2,516.68(T) 375.99
FUTA 9/12/77 337.78(T) (1975)
7612 5/11/76 795.40(T) 795.40 5/20/76
FUTA 7/ 9/76 (1976)
TOTAL ** $212,921.59
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